The oil crises of the 1970s prompted a range of policy changes that still exist today. For one, we invented the high occupancy vehicle (HOV) lane to incentivize workers to carpool. A nationwide 55 mph speed limit made sure those carpools weren’t guzzling too much gas. Cars became more fuel efficient; we (temporarily) started driving less. But some experts say those measures, coupled with those taken during the 2022 energy shock in the wake of Russia’s invasion of Ukraine, pale in comparison to what we’re about to see next thanks to the Iran war.
Earlier this month, the Paris-based intergovernmental agency International Energy Agency (IEA) released a record-breaking 400 million barrels of oil to temper rising prices. IEA executive director Fatih Birol, who coordinated the release, finally broke his three-week silence and sounded the alarms on how much damage the war is causing. In an interview Monday at the National Press Club of Australia, Birol said world leaders are underestimating the energy crisis, saying the ongoing energy shock is worse than previous ones.
“The depth of the problem was not well appreciated by the decision makers around the world,” he said. “If you want to put in a context, this crisis as it stands now: two oil crises and one gas crisis put all together,” he said.
Even as President Donald Trump said early Monday the U.S. was in talks with Iran—and would therefore withhold from striking critical energy sources for the next five days—Brent crude last week soared north of $110 per barrel. After the president’s announcement, oil prices fell about 10%, yet remain stubbornly high at about $102 as of 12 p.m. ET. Economists expect the oil shock to reverberate across the U.S. economy, potentially jacking up food prices, jeopardizing the possibility of a Fed rate cut this year (while raising the odds of a rate hike), and even threatening to halt the entire economy if oil prices rise to $140 a barrel.
The 1970s plus the Ukraine War
Birol elaborated on the numbers behind his assertion, saying the losses already accrued are far worse than those from the 1970 oil crises and the Ukraine war.
“Many of us remember the two consecutive oil crises in [the] 1970s: 1973 and 1979,” he said. “In each of the crises, the world has lost about 5 million barrels per day, both of them together 10 million barrels per day.”
“And today, only as of today, we lost 11 million barrels per day, so more than two major oil shocks put together.”
He added that after Russia’s invasion of Ukraine the gas markets, particularly in Europe, “lost about 75 billion cubic meters, 75BCM. And as of now, as a result of this crisis, we lost about 140BCM, almost twice” as much.
Beyond the energy shocks, Birol said the war is severing ties to some of the vital arteries of the global economy by disrupting other critical supply chains. The war, he said, has interrupted the trade of petrochemicals, fertilizers, sulfur, and helium, some of the most critical building blocks of the world economy. For example, roughly half of the world’s urea supply, a critical compound for fertilizer, runs through the Strait of Hormuz, potentially impacting the cost of U.S. food prices within the coming months.
“If fertilizer disruptions or inflation drives higher corn prices, that is going to be felt everywhere throughout the food supply,” Dr. Ricky Volpe, an agricultural economist and professor of agribusiness at Cal Poly, said in a recent interview with Fortune.
Even as Trump promises to withhold strikes on energy sources for several days, Birol said there are already many damaged oil refineries, gas fields, and pipelines across nine countries, which means that even when the war concludes, it could take some time for oil prices to adjust to their pre-war levels.
“Forty energy assets in the region are severely or very severely damaged,” he said. “It will take some time for these assets—these oil fields, gas fields, refineries, pipelines—[to] come to the normal capacity that they were running before the war.”
